business analysis week 1 nike inc

Though there was a decrease in account receivables, the inventories of Nike have been continuously increasing from 2014 to 2015 and from 2015 to 2016.. Both kinds of costs are having an

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CENTER FOR ADVANCED EDUCATIONAL PROGRAMS

BUSINESS ANALYSISWeek 1: Nike, Inc.

Group: 2Leader: To Duy BaoClass: Advanced Finance 57ASubject: Corporate FinanceTeacher: Ph.D Taewon Yang

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Table of Contents

I Background of Nike, Inc 2

II Nike Business Analysis 3

1 Balance sheet analysis 3

2 Income statement analysis 4

3 Ratio analysis 6

4 Cashflow statement analysis 9

III Nike performance 10

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I Background of Nike, Inc.

Nike, Inc is an American multinational corporation that is engaged in the design,

development, manufacturing, and worldwide marketing and sales of footwear, apparel,

equipment, accessories, and services The company is headquartered near Beaverton, Oregon,

in the Portland metropolitan area It is the world's largest supplier of athletic shoes and

apparel and a major manufacturer of sports equipment, with revenue in excess of US$24.1

billion in its fiscal year 2012 (ending May 31, 2012) In 2014 the brand alone was valued at

$19 billion, making it the most valuable brand among sports businesses.

The company was founded on January 25, 1964, as Blue Ribbon Sports, by Bill Bowerman

and Phil Knight, and officially became Nike, Inc on May 30, 1971 Founded as an importer

of Japanese shoes, NIKE, Inc (Nike) has grown to be the world's largest marketer of athletic

footwear, holding a g lobal market share of approximately 37 percent In the United States,

Nike products are sold through about 22,000 retail accounts; worldwide, the company's

products are sold in more than 160 countries Both domestically and overseas Nike operates

retail stores, including Nike Towns and factory outlets Nearly all of the items are

manufactured b y independent contractors, primarily located overseas, with Nike invo lved in

the design, development, and marketing In addition to its wide range of core athletic shoes

and apparel marketed under the flagship Nike brand, the company also sells footwear under

the Converse, Chuck Taylor, All Star, and Jack Purcell brands through wholly owned

subsidiary Converse Inc Nike has relied on consistent innovation in the design of its products

and heavy promotion to fuel its growth in both U.S and foreign markets

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II Nike Business Analysis

1 Balance sheet analysis

The balance sheet of Nike reflects a good financial position with huge assets and sources of

income Nike’s assets grew from 18.59 billion in 2014 to 21.59 billion in 2015, but there is a

slightly decrease in 2016 to 21.39 billion The total assets of an organization reflect the total

size of an organization A firm with a large number of assets have more capability to repay its

debt and to meet its obligations

The balance sheet of Nike shows that cash and equivalents did increased in 2014-2015

(nearly 1.8 times), which is a good indicator of growth From 2015 to 2016, it declined from

3,852,000 to 3,138,000 and this is the sign for Nike to reinvest if they want to make more

profit Account receivables of Nike slightly decreased or declined from 2014 to 2016

Though there was a decrease in account receivables, the inventories of Nike have been

continuously increasing from 2014 to 2015 and from 2015 to 2016

Nike’s current assets increased in 2014 to 2015 (an amount of 1,891,000$), but there is a

small decrease from 2015 to 2016 (about 562,000$) Also, property, plant and equipment also

increased from 2014, 2015 and into 2016, which shows that Nike is increasing its size.

The accounts payables of Nike have also increased from 2014 in 2015 (4,853,000$ to

6,151,000$) but drop in 2016 (5,313,000$) Nike’s liabilities comprise of current liabilities

that include short term loans, amounts payable to suppliers, or any other outstanding

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9,138,000$)

Stockholders’ Equity

Nike Inc.'s shareholders' equity increased from 2014 to 2015 (10,824,000 to 12,707,000) but

then slightly declined from 2015 to 2016 (12,258,000 in 2016) Common stock remained

stable at the value of 3000 In contrast, the retained earning value followed a downward trend

through three subsequent years (4,871,000 in 2014, 4,685,000 in 2015 and 4,151,000 in 2016)

2 Income statement analysis

Nike’s Revenue and Gross profit is increasing annually from 2014-2016 But in the period of

2015-2016, the revenue seems to be a half lower than the last period 2014-2015 (5.8% with

10.08%) and so does the gross profit (6.43% with 13.02%) The reason is the hyper strong

growth of Nike’s biggest rival, Adidas In early 2015, Adidas was underperforming Nike in

the key US sportwear market, but with the new marketing strategies and the releasing of a

series of new shoes such as Alpha Bounce and Yeezy, Adidas company has been able to

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industry and one of the top revenue earners.

Costs and expenses:

The increasing of the costs is essential and unavoidable to improve the working performance,

in order to increase the sales revenue The main costs are cost of good sold (COGS) and

Selling, General and Administrative(SGA) cost Cost of goods sold keeps track of how much

it costs a business to produce or purchase a good or service to be sold to customers, while

SGA consist of the combined payroll costs Both kinds of costs are having an reasonable

increasing rate of approximately 8% per year in Nike income statement.

Although the costs is increasing, Nike company still could manage to increase the EBIT

over years ($3.68b in 2014, $4.175b in 2015 and $4.5b in 2016) EBIT index shows people

how well the company is doing and how effective the operating activities are having In this

case, Nike company is having an excellent performance The increasing EBIT of Nike is a

really good sign for attracting some new investments into the company, or raising funds from

the public.

Net income

In Nike company’s income statement, the net income is significantly increase over years

($2.693b in 2014, $3.273b in 2015 and $3.760 in 2016) Increasing in net income is always a

positive sign for every corporation company Firstly, it allows Nike to pay more dividends to

stockholders, therefore increases the stability of Nike’s stock Secondly, it increases the

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Short-term solvency ratios or liquidity measures provide information to determine a

company's ability to pay off its short-term debt obligations There are three ratios, which fall

under liquidity ratio They are current, quick and cash ratio These ratios tell how efficiently

an organization can transform its security into cash.

Current Ratio

NIKE inc always has the current ratio gone around 2.5~2.8, in 2014 it was 2.72 times,

reducing to 2.46 in 2015 and then went up to 2.80 in 2016 These ratios indicate that over the

past three years, NIKE has been able to pay all the short-term debts.Reinvestment should be

more taken into consideration by NIKE because the ratios are quite big in 2016 and not really

the good sign for the company’s profitability.

Quick Ratio & Cash ratio

These ratios show the ability that the most liquid assets (excluding inventory) available can

easily cover all the current liabilities All current and quick ratios of Nike in the

3-year-period, from 2014 to 2016 can show that this company has more assets than liabilities and be

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Based on this data, we see that in 2014, NIKE Company had $0.42 in debt for every $1.00 in

assets, indicating $0.58 cents in equity In 2015, it had $0.41 in debt for every $1.00 in assets,

therefore raising equity to $0.59 Lastly, in 2016, NIKE had $0.43 in debt for every $1.00 in

assets, thus equity to $0.57 NIKE is a large and well-established company, they can multiple

income from customers, so it is acceptable with debt level round 40% through years.

Debt-Equity ratio

As we can see, the debt-equity ratio of NIKE Company fluctuated between small differences

over the course of three years For example, in 2016 NIKE had the D/E ratio by 0,75 times,

which means they had $0.75 of debt to every dollar of equity With low D/E ratio, the

company makes them low risk to the bank and they can easily loan from banks

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companies in their overall industry Profit margins are expressed as a percentage and, in

effect, measure how much out of every dollar of sales a company actually keeps

in earnings.NIKE’s profit margin increased by around 1% year by year, from 2014 to 2016

In 2014, the company had net income of $9.68 for each dollar of sales In 2015, that number

of net income went up to $10.69 and in 2016, for each dollar of total revenue earned, NIKE

generated $11.61 in profit.

Comparing to other strong competitors in sportwears manufacturing industry such as

Adidas, NIKE’s profit margin is always standing higher, because Profit margin of

Adidas Group in 2016 and 2015 equal 5.28% and 3.78%, respectively.

Return on Total Assets

This information reveals that NIKE has a healthy return on assets percentage Compared to

others competitors, NIKE’s percentages are pretty higher Therefore, in the large-scale,

diversified sports equipment industry, NIKE appears to be ahead of its competition in this

Return on Common Equity

These numbers show that NIKE provides a decent return for investors From 2014 to 2015,

investors’ return gained about 3.5% increase and from 2015 to 2016, investors’ return gained

about 19% increase-it is a significant change While the numbers fluctuate, they indicate that

investors can generally anticipate returns greater than 10% For risk-averse investors, this

may be a really tempting option.

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4 Cashflow statement analysis

We notice that Nike’s net income increased dramatically from 2,6 billion to 3,8 billions

respectively from 2014 to 2016 But the cash flow also is affected by 3 others categories

which are operating activities, investing activities and financing activities

The first factor of cash flow analysis is the operating activities, which is related to Nike’s

company core business activities such as manufacturing, maintaining, marketing and selling

process There are quite differences between 3 years’ asset depreciations, which can be

explained by the expansion of manufacturing equipment Noticeably, adjusted net income is

an indicator of how much a business would be worth to new owners, so in 2015 there are

more changes in number of owners in Nike, which had doubled adjusted net income which is

nearly 502 million dollars It is obvious that there is a huge contrast in changes in liabilities

and account receivable between 2014-2015 and 2016 In first 2 years Nike got the money out

flow because of the deviations in account receivable, when it turned nearly $200 million of

accounts receivables into cash during the period, because these receivables were for net

income earned in a prior period On the other hand, they got positive cash flow from in

changes in liabilities In 2015, the company gained more than 1 billion from this

transformation To sum up, all 3 years brought to Nike the positive cash flow and 2015’s

inflow cash was higher than others closely $1 million.

The investment reflects the company’s purchases and buys during the period According the

report, Nike total capital expenditure raised from $800 million in 2014 to nearly $1,1 billion

in 2016, which is the primary driver for the decrease of cash in net income The company

obtained extra cash from investing activities ($700 million in 2015 and $93 million in 2016

separately); however, it lost nearly $300 million because of investing actions in 2014 In

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more than $1 billion negative cash flow.

Finally, financing activities is the external activities to issue stock to raise cash Fitting to the

report, the amount of money that Nike had to pay to the dividends rose through 3 years,

which started from $800 million to $900 million to over $1 billion As a part of its plan, the

company repurchased around 2 – 2,2 billion dollars of stock to return value to stockholders

In order to fund recent acquisitions of its partnership share in certain joint ventures, Nike

borrowed approximately 900 million dollars in 2016 In contrast, in 2014 and 2015, Nike

didn’t have to borrow money to obtain their obligation

III Nike performance

From the income statement, it can be seen clearly that the company is improving from one

year to another Revenue, operating income, and net income have an upward trend from the

year 2014 to 2016 The same case is observed in the balance sheet whereby the value of the

company has an increasing trend Total shareholders equity and total liabilities increase for

$18.181 billion in 2014 to $20.984 billion in 2016 Thus, the company performance is good.

A healthy improvement is shown in the net income of the company as well as the revenue

and Gross profits have increased to double figure which is a good sign for the company`s

financial health Although, selling general and administrative expenses have been increased

to double figure that should be maintained as a single figure for good financial health of the

company

The growth profit was working well as it was nearly stable improving while the net profit and

operation profit was un stable and un expected result that reflect an issue in operating in the

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